Educational Articles

Google Looking to Buy ITA – Impact on the Industry

Kathryn M. Drew
| December 28, 2010

Search engine giant Google (GOOG) is looking to acquire ITA Software, a leading provider of software solutions to the online travel industry. The deal, which was announced in July and reportedly worth $700 million, has incited strong opposition from several players in the market, including Expedia (EXPE) and Kayak, who are raising questions about the impact the sale could have on the industry as a whole.

These travel websites, all of which heavily depend on ITA software, argue that Google’s purchase of the company could give the mogul an unfair advantage when it comes to online travel search, thereby limiting fair competition in the market. Although Google vehemently denies any intention of using ITA to inhibit competition, many players in the industry simply aren’t buying it.

Travel search website Kayak specifically has a lot to lose with its initial public offering (IPO) looming. ITA driven searches account for a considerable portion of Kayak’s revenues, and with the future of the software company up in the air, investors may find Kayak less appealing at its IPO.

In an attempt to voice its concerns, Kayak joined other competitors in forming a coalition called FairSearch.org, which has appealed to the Justice Department in hopes of blocking the deal. The coalition argues that acquiring ITA would not only allow Google to manipulate search results, but also enable it to block competitors’ access to the software, which is essential to their operations.

In addition, the merger raises questions regarding Google’s position in the Internet economy and the possibility that the company is becoming too powerful. Competitors suggest that if this sale were approved, it would pave the way for Google to enter into more questionable deals in the future, allowing it to further extend its already dominant reach and hinder competition. Furthermore, the effects could hurt consumers since the lack of competition would likely lead to higher prices and fewer choices in the market.

However, the implications of the deal may not be all bad. In fact, some online travel agencies (OTAs), such as Priceline.com (PCLN) and Orbitz Worldwide (OWW) have taken no issue with Google’s conquest. These websites have suggested the deal could be beneficial for the industry, leading to more relevant searches and better-qualified customers among other improvements.

Depending on Google’s approach, the merger could indeed improve the industry for both competitors and consumers by allowing the company to build tools that increase traffic to travel sites and better direct the flow of queries, leading to higher overall sales and a more efficient industry. However, there is no question that acquiring ITA would put a great deal of power in the hands of Google, which could hurt online travel if the company were to fully exploit its advantage.

All told, Google undoubtedly holds a dominant position in the Internet economy, and this deal would inevitably further the company’s position. It is clear that if allowed to close, the Google/ITA merger would affect the online travel industry, but the characterization of the impact depends largely on the stance Google takes if and when the sale is completed. In the meantime, the Justice Department is conducting a full review of the deal.

At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.